- BC Games
Abbotsford Heat shortfall hits $1.76 million in year three
by Dan Kinvig and Kevin Mills
The Abbotsford Heat will cost taxpayers $1.76 million for the 2011/12 season.
The city will pay the American Hockey League club that amount to cover its financial shortfall in the third year of a 10-year supply fee agreement, which guarantees the Heat annual break-even revenue of $5.7 million to play out of the Abbotsford Entertainment and Sports Centre (AESC).
Over the last three seasons, the city has paid the Heat a total of $3.58 million. The deficit was $450,000 in 2009/10, and $1.37 million in 2010/11.
“We’re certainly concerned that we are not making the progress that we had hoped to make,” said city manager Frank Pizzuto.
“Year one was a $450,000 loss, and we felt that, well, that was year one. Year two got worse and we heard that year three would rebound and it hasn’t,” he said. “Obviously, the city can’t continue to absorb these losses.”
The Heat’s 2011/12 revenues were $3.9 million, as average attendance declined for a third consecutive year – from 3,897 per game to 3,807, and 3,545 last season.
The team is owned by the Calgary Flames, and operated locally by Fraser Valley Sports and Entertainment (FVSE), which includes businessmen Lane Sweeting, Barry Marsden, Ron McNeil and Fred Strumpski.
Sweeting said this year’s deficit was the result of shortfalls in ticketing and commercial sales.
Sweeting said his FVSE group spent an additional $950,000 of their own funds last season – in addition to the $5.7-million budget guaranteed by the city – in an effort to boost attendance. Those funds went to an expanded marketing campaign including “TV and radio in the big city,” and salaries for more salespeople.
With that investment yielding few dividends, the Heat have trimmed their budget back to the core $5.7 million for 2012/13.
“Last year we said, ‘Let’s make sure it’s not marketing that’s causing us not to fill the seats,’” Sweeting said. “And we found out it didn’t matter.”
Asked to pinpoint reasons for the lack of growth, Sweeting mentioned a series of long-standing issues. The Heat’s home schedule consists of back-to-back games, and few fans can attend both on a weekend. Then there’s the team’s less-than-popular affiliation with the Flames, a division rival of the Vancouver Canucks, and lingering public dissatisfaction with the decision to build the AESC and the supply fee deal with the Heat.
Introducing AHL hockey in a new market has also proven a tougher sell than anticipated.
“We’ve always said for three years that this is a new product, a new team, a new building, and it’s certainly taking longer than we’d ever dreamt of it taking,” Sweeting noted. “We are in a Canuck market – maybe we’re not in as strong a hockey market as we thought.”
According to the report which Abbotsford city council will discuss at Monday’s meeting, the average attendance required for the Heat to break even is 3,905 paid customers. While AHL attendance stats pegged the team at 3,545 fans per game last season, the report indicates the paid customer base was 2,653.
“Paid customers,” as defined by the city, is based on a $20 ticket. Any ticket distributed for less – including season ticket packages and flex packs offering tickets at a per-game discount, or tickets dispersed via sponsorship deals – detracts from that number. The Heat also average around 300 comp tickets per game, earmarked for players’ families, opposing teams, charities or strategic initiatives.
Each year, the city budget is prepared with estimates of what the Heat deficit will be. The higher than expected deficit will cost the city an estimated $866,000 more than what was budgeted.
Pizzuto explained that because the city fiscal year is January to December and the Heat budget runs July to June, “you are always trying to catch up.”
The $866,000 is based on the increased shortfall from the second half of the 2011/12 season and the expected shortfall from the first portion of the current 2012/2013 season.
According to the staff report, the shortfall can be made up from the 2012 operating budget. Saving money by delaying replacing departed employees and better revenue from other areas were used to make up the difference.
"What we ended up with is a greater deficit because we under-budgeted," Pizzuto said. "The important thing is that we didn't have to go into our reserves or anything."
While new options need to be considered, Abbotsford Mayor Bruce Banman said breaking the decade-long deal is not among them.
“We would still be battling in court long after this agreement is done and we would end up having to pay damages,” conceivably as much or more than the total future annual subsidy fees.
The contract does contain a five-year financial review clause. However, changes have to be agreed on by all parties.
Sweeting believes there are reasons for optimism going forward, beginning with the ongoing NHL lockout. The big-league labour unrest has shone a brighter light on the Heat, and Sweeting is hopeful the increased exposure will help build a foundation for long-term gains.
The franchise is showing signs of growth this fall, according to team president Ryan Walter.
The renewal rate for full season tickets is 83 per cent, whereas in previous years it had never hit the 70 per cent mark. Just four home games into the regular season, sales of flex packages are already past half the budgeted revenue for 2012-13. The team has also moved more group tickets at this point than they did in the entire 2009-10 season.
“At the end of the day, the (2011/12 deficit) number is reality. But I still believe with all my heart that it can work in Abbotsford. We’re trending in a good way this year,” Walter said.
The team, in an effort to get more families into the rink, has cut its lowest ticket price from $20 to $15.
“It’s going to work, because we believe it’s a good product at a good price in a good venue...” Sweeting maintained.
“We’re seeing a growth this year – we’re ahead of where we were last year, which we’re excited about.
“If we can show growth, it calms everybody down. The day the city stops cutting cheques, every issue goes away.”